This thread does a lot on asking what is a
start
up and what about taking equity funding, e.g., from
a venture capital firm, versus remaining a company
100% owned by the founder(s).
The discussion keeps trying to find simplistic
patterns that cover most of the cases. I claim
that such new businesses (start ups) are so
varied that we should not look for simplistic
patterns and, instead, just look at the businesses
themselves.
Here is an approach to some insight into the growth
of a new business: Commonly the intended or
expected growth is modeled with a spreadsheet
with, say, one column for each planning interval
(maybe one month) in the plan of growth, but long
ago I decided just to use an interpretive procedural
language with, essentially, a Do-loop with one pass
for each planning interval.
So, of course the Do-loop has some variables. So
maybe we have some variables for business decisions,
for random exogenous inputs, and for the state of
the business.
Considering all of these variables and the business
dynamics during each planning interval, we see that
we can have a lot of complexity.
In particular, in some of this complexity, we can
see that the business can run short of various
necessary resources such as management time,
capacity of the server farm in users served per
second, disk space used by the database software,
time to hire and train staff, floor space used by
the staff, rate of writing software, ads served per
second, revenue from the ads, delays in getting paid
by the companies running the ads, etc.
So, there are lots of 'constraints' or limitations
which can slow the growth of the business.
Generally, if usage and revenue are growing slowly
and the free cash is low, then we react by slowing
down on hiring, buying servers, etc.
Yes, it can be that a big check of equity funding
can open or relax many of these constraints. But
it may be that margins and free cash flow are nicely
high and the constraints that are 'tight', e.g.,
management time, rate at which can bring on more
software engineer staff, are not relaxed by equity
funding.
Programming a multi-interval growth model makes
these points quite clear. Just envisioning such
software should, for the HN audience, also make the
points plenty clear.
So, net: We can't generalize. It might be that for
some start up, equity funding cannot help its growth
because cash is not nearly one of the tight
constraints and, instead, the start up might be able
to grow as fast as possible just organically.
Common? No. Possible in principle? Yes. Possible
in practice? Maybe, but don't try to generalize or
theorize. Instead, if have such a case, then
recognize, accept, and run with it and tell the
people with equity capital "no thanks".
So, really, we can't generalize: Organic growth
might be for a business that has just one pizza shop
and will never have more, a business selling donuts
that opens a new location once a quarter, a Web site
that is a lifestyle business and gives the sole
proprietor and owner $5 million a year in income but
is not growing very quickly, or a similar Web site
business that is growing rapidly, as fast as the
time of the sole proprietor permits.
Such an organically grown business might be the next
"big thing", worth $400+ billion, depending just on
the business, say, the Web site, how many users like
it how much, and how much free cash flow the revenue
from the ads generates. In general we can't say and
have to look at the particular business.
But, we can draw conclusions from what was common in
the past? When looking for "the next big thing"
(NBT), mostly just simple empirical patterns from
the past are next to useless, deliberately, even
nearly necessarily, so since the NBT might be --
should be, likely is -- quite new and different.
So, again, when looking for NBT start ups, we have
to consider them one at a time with little hope of
good help from past, simplistic patterns.